Acute Risks!!

Tuesday likely will be another pivotal day for equities, with Goldman Sachs
earnings due out before the opening bell, and at 2:15 PM ET, the FOMC decision.
Some people already are calling for a rate cut of 50 bps (to 1.50%) in order,
I suspect, to allay investor fears in the aftermath of the Fed refusing to
throw more money at companies with ugly balance sheets and bad debts.

My sense is that in the absence of a solution to the AIG problem, and the
inability of the market to embrace Goldman's quarterly results early tomorrow
morning, a FED rate cut is VERY risky indeed, because it will take the market
about 10 minutes to send a message to Washington that the credibility and confidence
in the Federal Reserve (shall we say) just is not what it used to be. And THAT
will put a major hurt on the financial markets that will make what has happened
recently look like a minor sell-off. I hope I am wrong, but the enclosed monthly
chart of the SPX exhibits an ominous structure indeed.

The very big picture of the cash SPX has a very ominous look indeed. Is it
possible, or likely, that the gigantic "M" formation could press or plunge
its way towards a retest of the bottom of the "M" at 2002 low of 786.60? At
this juncture, with the price structure ominously poised to attack critical
long-term support at 1174 -- the 50% pullback level of the entire upleg from
October 2002 to October 2007 -- the idea of a plunge to much lower levels does
not seem to be such an outlier, does it? We certainly have the financial, fundamental,
and psychological set-up to perpetuate such a panic.

Be that at it may, a sustained breach of 1174 could trigger a washout, the
likes of which could surprise the market historiansŠmyself included.

From my perspective, the next 24 hours are frought with acute risks, which
is why we are long the QIDs (ultrashort QQQQs), and long both the GLD (gold
ETF), and the GDX (Gold Miners ETF) in our MPTrader.com model portfolio.

All of the action in the QID for the past week has carved out a sideways congestion-digestion
pattern in the aftermath of the powerful upleg off of the August 15 low at
38.27, which should resolve itself to the upside to complete the Aug-Sept upleg.
The current upleg looks like it has unfinished business on the upside into
the 52.50 next target zone. Only a decline that breaks beneath 46.80/70 will
begin to compromise the still developing constructive pattern in the QIDs.

As for the GLD, Monday was the second consecutive up-day in the GLD, which
closed at the high amidst a powerful RSI momentum double bottom low in Aug-Sept.
This represents a very powerful bottom formation that should propel the GLD
towards its major breakdown point in the vicinity of 84.00-85.00 in the upcoming
hours/days. I entered late, but from a technical perspective the pattern is
unambiguously positive. The only issue is the depth of the next pullback and
from what level it starts.

Mike Paulenoff is author of the MPTrader.com (www.mptrader.com),
a real-time diary of his technical analysis and trading alerts on ETFs covering
metals, energy, equity indices, currencies, Treasuries, and specific industries
and international regions.